After all, recent press had presented less-than-glowing reports about job growth and discouraging news on housing starts. In addition, external factors - everything from political strife to natural disasters to economic uncertainty – warranted a wait-and-see attitude.
Confidence in U.S. Hotels
Yet all the executives agreed on the subject of the U.S. hospitality industry. The group expressed optimism about the nation's hotel sector. Conference attendees recognized that hotel industry fundamentals are gaining strength.
Such recognition by industry experts is seen as a huge boost of confidence for the U.S. hospitality sector. Several CEOs admitted that specific regions might have a "spotty" economic and hotel landscape. Yet the group as a whole insisted that general signs are "mostly good" for the hospitality industry.
Supply and Demand
Hilton CEO Chris Nassetta thinks supply and demand fundamentals will result in improvements to hotel operating performances. He sees a positive change in group pace with no sign of weakness. Nassetta predicts a strong second half of 2011 driven by the supply and demand fundamentals.
Nassetta refers to a "choppy environment" resulting from circumstances in Japan and Egypt as well as the U.S. economy. World events can have a significant effect on the lodging industry.
Yet the Hilton CEO has an overall optimistic opinion about the hotel sector. General strength is apparent in the global economy. In response to the overall strong world market, brand companies are intensifying their efforts to grow inside and outside North America.
Starwood’s CEO Frits van Paasschen expects the projected 4.5% growth in global GDP to have considerable positive impact on his company. Various CEOs expressed their belief in the potential of the hospitality industry (especially in the US) to gain momentum in rate growth.
Hilton CEO Chris Nassetta says, “The supply and demand fundamentals are the best I’ve seen in my career and that will lead to RevPAR growth fueled by rising rates.”
Mark Lommano of STR agreed with Nassetta’s statements. During 2011, STR predicts an 8% increase in RevPAR for U.S. hotels. At least 50% of that increase will come from rate growth. In 2012, RevPAR will rise at a similar level (8.1%) but rate will account for 75% of the increase.
As well, capital flows to the hotel sector will have a global connection. Mark Elliott of Hodges Ward announced that 50% of his firm's transactions from January-June 2011 have involved capital coming from outside the U.S. (such as the United Arab Emirates, Kuwait, Asia, and Europe). Generally, international capital accounts for 4% of the transaction volume within the U.S. lodging industry.
In recent months, an increasing number of hotel investors are turning to international capital for current cash flow instead of waiting for later returns. Of course, financing executives understand the reality of restricted U.S. visa policies and their effect on hotel performance and value.
Marriott International President & COO Arne Sorenson explains, "The ability of foreign travelers to come to the U.S. is the biggest upside the hotel industry has."
Demand for U.S. hotels should grow at home and in Europe. Yet the "mother lode" would be getting strong tourism traffic from several other countries. According to Sorenson, foreign guests could "drive millions or ten millions of room nights a year."
Image courtesy of cushmanwakefieldhospitality.com